Airline Stock Roundup: IATA's Downbeat Coronavirus-Led Forecast, LUV In Focus

In the past week, the International Air Transport Association (IATA) increased its revenue decline projection for the airline industry in 2020. The forecast for the higher amount of revenue losses was due to multiple flight cancellations following the rapid spread of the dreaded coronavirus (COVID-19) to multiple countries across the globe.

Additionally, passenger traffic growth across the globe in January 2020 was the slowest in a decade due to the above-mentioned health peril. Moreover, with Italy being one of the worst-affected coronavirus countries, European carrier Ryanair Holdings (NASDAQ:RYAAY) , which had earlier decided to trim its capacity to/from Italy by 25% from Mar 17 to Apr 8, announced that it intends to suspend more domestic and international Italian flights through Apr 8.

Coronavirus-related updates were also available from U.S. carriers like JetBlue Airways (NASDAQ:JBLU) and Southwest Airlines (NYSE:LUV) in the past week. While JetBlue withdrew its first-quarter 2020 and full-year outlooks, Southwest Airlines lowered its first-quarter unit revenue view due to this health hazard.

(Read the last Airline Stock Roundup here)

Recap of the Past Week’s Most Important Stories

1. According to Alexandre de Juniac, director general and CEO of the IATA, passenger traffic growth across the globe in January 2020 was the slowest in a decade. Notably, demand (measured in total revenue passenger kilometers or RPKs) inched up 2.4% in the month on a year-over-year basis, signaling the lowest monthly increase since Apr 2010.Juniac termed the January traffic performance of airlines as the “tip of the iceberg’ as “major travel restrictions in China did not begin until Jan 23”. In the opening month of the ongoing year, the health scare was only confined to China and was still considered an epidemic. (Read more: Coronavirus Upends Air Travel as Growth Slumps to Decade Low).

2. Given the vast majority of countries that the coronavirus outbreak has spread to and the resultant slump in forward bookings, the IATA now anticipates a global passenger revenue loss of $63-$113 billion for 2020. This is significantly higher than the previous projection of a $29.3-billion passenger revenue loss when its estimate was based on the assumption that the coronavirus-caused low demand would affect mostly the Chinese market. The research firm anticipates a negative $63-billion passenger revenue impact assuming that the outbreak will mostly impact demand in the Asia-Pacific (China, Japan, Singapore, South Korea), Europe (France, Italy, Germany) and the Middle East (Iran). (Read more: IATA's New Forecast Adds Gloom to Coronavirus-Hit Airlines).

3. Management at Southwest Airlines now expects first-quarter total revenue per available seat mile (RASM: a key measure of unit revenues) to either dip 2% or increase up to 1% from the year-ago figure. The company had earlier anticipated a RASM increase in the 3.5-5.5% range for the March quarter.

Notably, this Dallas, TX- based Zacks Rank #3 (Hold) airline witnessed upbeat passenger bookings in January and February (the first two months of the quarter). However, recently, demand declined massively coupled with an increase in trip cancellations. The carrier expects the drop in demand to persist in the remainder of March, given the rapid spread of the coronavirus. Consequently, first-quarter operating revenues are expected to decline between $200 and $300 million. (Read more: Southwest Airlines Down on Coronavirus-Induced Q1 RASM View).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

4. As JetBlue is experiencing “significant deterioration” in forward bookings since late February due to the rapid spread of the coronavirus, the low-cost carrier withdrew its guidance for first-quarter 2020 as well as the full year. The carrier expects coronavirus to negatively impact its first-quarter RASM performance significantly. To combat this virus-induced low demand, JetBlue is taking steps to control costs. On similar lines, United Airlines (NASDAQ:UAL) plans to trim domestic capacity by 10%. The Chicago, IL-based airline intends to cut back U.S. and Canadian flights by 10% as well as slash capacity on international schedule by 20% in April. Simultaneously, United Airlines is putting hiring (except for crucial positions) on pause at least through Jun 30. (Read more: United Airlines Takes Several Steps to Fight Coronavirus Woes).

5.Allegiant Travel Company (NASDAQ:ALGT) intends to invest $50 million in establishing a new base at Concord, NC. The company aims to immediately start hiring pilots, flight attendants, mechanics and ground personnel to facilitate operations at the new base, which are expected to begin Oct 7, 2020. Notably, the commencement of operations is likely to generate at least 66 high-wage jobs. Moreover, two Airbus aircraft will be housed at the new base. (Read more: Allegiant to Set Up $50M Worth North Carolina Operational Base).

Price Performance

The following table shows the price movement of the major airline players over the past week and during the past six months.

The table above shows that all airline stocks traded in the red over the past week inducing the NYSE ARCA Airline Index to decline 11.4% to $73.91 as the coronavirus woes rock the industry. Over the course of six months, the sector tracker has declined 25.3%.


What's Next in the Airline Space?

Investors will await the fourth-quarter 2019 earnings report of Azul (NYSE:AZUL) , scheduled to be released on Mar 12. Watch this space for further updates on the coronavirus and its resultant impact on the sector.

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